The Rand has gained 15% since November to achieve levels not seen since mid-2015, reaching a low of 11.80 to the USD on 25 January. This run of growth highlights the ZAR as the best-performing currency against the Dollar out of 31 major currencies tracked on Bloomberg in the last three months.

SOWETO, SOUTH AFRICA – DECEMBER 18: New president of the ANC Cyril Ramaphosa during the announcement of new party leadership at the 5th African National Congress (ANC) national conference at the Nasrec Expo Centre on December 18, 2017 in Soweto, South Africa. As ANC delegates‚ supporters of the two presidential candidates were equally confident that their preferred choice will be announced as the new president of the ANC. The race was between Nkosazana Dlamini-Zuma and Cyril Ramaphosa‚ the only two nominees for the party's top position. (Photo by Gallo Images / Alet Pretorius)

The recent strength shown by the ZAR can be attributed to a range of contributing factors. From rising commodity prices, a weak Dollar and high local bond-yields, to decisive political action and consequent bullish investor-sentiment.

The CPI report released last week showed diminished year-on-year inflation of 5.3% (within the stipulated bracket of 3 – 6% and down by 1.1% from 2016). This positive development signifies, amongst other things, increased inflation-adjusted yields in an already high-yield environment.

Add a booming commodity sector to the high inflation-adjusted yields, and hence a strengthening trade account, and we can explain a fair portion of recent Rand-strength. It helps that these improved local fundamentals have been set against the backdrop of a weaker Dollar.

Some would argue that the real momentum behind recent displays of Rand-strength is a resolute Cyril Ramaphosa. The newly elected leader of the ANC attended the World Economic Forum in Davos last week, promising good governance, fiscal prudence and a foot on the throat of corruption.

His promises have been shown to hold water thus far, as we have seen the seizure of Gupta-related assets, with charges against all those involved rumoured to be forthcoming. There is also a concerted effort underway to clean up struggling power-utility Eskom. Amidst this action, Ramaphosa has also stated that, in the interest of fiscal prudence, nuclear power is not an option for South Africa.

Collectively, these factors make a strong case against a ratings downgrade come March. In the short- to medium-term, however, the Republic is still on shaky ground as it awaits next month’s Budget Report.

The Rand softened yesterday as the Dollar found some stability. Barring any significant political developments, the Rand is expected to remain firmly between R11.80 and R12.05 in the week to come. In the long-term, the outlook is seemingly positive, with Goldman-Sachs touting South Africa as “the big emerging market story of 2018”.

When

What’s happening

Why it’s important

Tuesday 30th January 2018

ABSA Manufacturing PMI

Forecasted to increase. If expectations are met, the result should improve local fundamentals.